Government curbs holiday pay ruling

Employers may see the potential costs caused by the November 2014 holiday pay ruling reduced after the government announced measures to limit employees' ability to claim backdated holiday pay.

The government has submitted draft regulations that would mean employers are only liable to pay backdated holiday claims for a maximum of 2 years.

The changes will only apply to claims made from 1 July 2015 onwards.

The Employment Appeal Tribunal ruled in November that employers must account for overtime when calculating holiday pay instead of only factoring in basic pay. The ruling also allowed employees to make backdated claims for holiday pay, potentially going back to 1998 when the UK adopted the EU Working Time Directive.

The tribunal had originally restricted employees' ability to claim backdated pay:

workers' will not be able to claim backdated pay if there is a 3 month gap between holidays

the ruling will not apply to the 8 additional days annual leave workers are entitled to in the UK (all workers are entitled to 20 days annual leave under EU law).

Commenting on the original ruling, John Cridland, director general of the Confederation of British Industry, said:

"This is a real blow to UK businesses now facing the prospect of punitive costs potentially running into billions of pounds - and not all will survive, which could mean significant job losses.

"This judgment must be challenged. We need the UK government to step up its defence of the current UK law, and use its powers to limit any retrospective liability that firms may face."